J.H.Laherrère
Associate consultant Petroconsultants Geneva
Disagreements often occur between people because they have different definitions for the words they use. So what are we talking about?
Units for this paper:
SI= System international of units = 1960
adopted by every country except Bangladesh, Liberia
compulsory: European Union, US federal agencies (Sept. 1993)
symbols: k = 103 = kilo = thousand
M = 106 = mega = million
G = 109 = giga = billion US
T = 1012 = tera = trillion US = billion SI
for computers MB = megabyte, for oil & gas Mb = megabarrels,
GB = gigabyte Gb = gigabarrels,
Gcf = giga cubic foot,
Tcf = tera cubic foot
Gas Equivalence
ground, wellhead, burner tip?
Canada *: 1989: 1 boe = 14 103 cf 1991: 1 boe = 20 103 cf
*The Petroleum Society of the Canadian Institute 1993
world gas equivalent? data from Petroconsultants at end 1994:
gas equivalent in Gboe:
calorific (6) = 775 Gboe = 86% oil
price (10) = 465 Gboe = 52% oil
value (20) = 235 Gboe = 26% oil
What is the uncertainty of the reserve estimates?
Who are the actors involved?:
with a tendency to overestimate the small fields and to underestimate the large fields
Four problems:
Some recent articles show the problems, as shown by no more than their titles and selected quotations:
-« A consistent probabilistic approach » Capen 1996:
an industry that prides itself on its use of science, technology, and frontier risk assessment, finds itself in the 1990’s with a reserves definition more reminiscent of the 1890’s.....
illegal addition of proved reserves
“There are currently almost as many definitions for reserves as there are evaluators, oil and gas companies, securities commissions, and government departments. Each one uses its own version of the definition for its own purposes.”
-« Classification of oil and gas reserves and resources in the Former Soviet Union » Khalimov 1993 (he presented this classification at the 10th WPC in 1979!)
...the resource base appeared to be strongly exaggerated due to inclusion of reserves and resources that are neither reliable nor technologically and economically viable
in fact, resources (namely what could be reserves if there were no constraints for economics or for technology) were taken as reserves (namely what is expected to be produced with foreseeable economics and technology). Published values vary:
FSU oil reserves:
The probabilistic approach (fig 1) may use different ways to define P, 2P and 3P.The SPE/WPC (1996) task force for common definitions proposes:
P = 90%, 2P = 50%, 3P = 10%.
The evolution of uncertainty for reserves of a single field (fig 2) is an example of the way the reserve range should evolve up to the final single definitive number which is known absolutely only when the field is abandoned.
What is the value of adding « proven » reserves?
-in the assessment of a field, reserves are computed by multiplying several (4 for example) proven parameters (85%?) result: probability: 0.85 4 = 52% over-estimation (Elliott 1995)
what is correct is to multiply most likely values
-in assessment of a basin, adding proven reserves of a large number of fields: illegal (Capen 1996) or stupid = under-estimation In the case of throwing dices, the chance for one dice to obtain more than 1 or ³ 2 is 83% (5 out of 6) = probability as proven. When throwing eight dice, the chance to get ³ 16=sum of eight times 2 is 99%: it is over-over proven!!
what is correct is to add expected (mean) values
Happily most of so called proven values are in fact proven+probable, close to mean or to the mode. So adding these values is not too far wrong.
But adding a large number of possible projects (IEA) (instead of expected values) to obtain the future supply is also incorrect and leads to overestimation.
What is published for reserves and production?
-1-Reserves
publishing reserves is a political act: it depends of the image desired
For OPEC, quotas depend on reserves: large increase around 1987 for the M.E. without any new large discoveries: they went from P to 3P
More than half of the countries show no change for years!
for the world end 1994: crude oil (some include condensate!) and gas
World Oil: (P) 1 111.6 Gb and 4 761.3 Tcf
O&GJ: (P) 999.8 Gb and 4 980.3 Tcf
Petroconsultants: (2P) 900 Gb and 4 650 Tcf
-1-5- government agencies
-2-Production of liquids:
rounded Mb/d
total liquids 71
What is the effect of technology and economics on reserves?
-Economics:
All activities depend on oil prices. The US $/ft drilled versus $/b (fig 3) vary up and down along a linear trend. Any improvment cannot be attributed to technology.
In the past, substantial oil price changes (and economic constraints) have a strong impact on production. The US production (fig 4) displays a symmetrical curve (Hubbert) except when economics are disturbed: 1930s = depression, 1950s = proration, 1970s = oil shock.
A new oil shock will increase the production of non-conventional resources as EOR, heavy oil of Orinocco and tar sands Athabasca which are not yet reported as reserves. World petroleum production including all sources (fig 5) is likely to present a peak around 2020, as about the same time as the peak of population of industrialyzed countries (birth rate at 1.7 child/woman).
-Technology:
Technology will solve all the problems, say some: but tools considered as new (3D, horizontal wells) have been around for 20 years: they improve the development, save money, but accelerate depletion rather than adding significantly to the reserves.
Not a single major oil field has been found because of 3D seismic or horizontal well
The best impact of technology was the semi-submersible rig in offshore.
Technology is necessary to fight against the diminishing returns of Nature.
What is left to discover are the complex, small, difficult to reach and uneconomic fields: new tools will be welcome, but the contribution will be small compared to the strong decline of the old fields.
Improvement in recovery factor: already reported in present data, often beyond possible (ex Ghawar 65%, Samotlor 50%, when today 30%,with a decline of 15%/a, and a water cut at 92%). It is difficult to extrapolate the data which are unreliable within a certain period.
In US, because of SEC rules, proven reserves grow every year with more wells, more enhanced recovery, more knowledge.
There is no field growth as estimated by USGS (Masters at WPC) if the probabilistic approach is properly done
If revisions are backdated to discovery year (or to the date when the decision to develop was taken), the trend of discovery is completely different. The World-(US+Canada) discovery trend (fig 6) displays a completely different image if revised data are used instead of backdated data.
What does R/P mean?
Many people rely on R/P ratio (remaining reserves end of 1995 versus annual production for 1995) saying: if the world has 45 years of reserves vs production: there is no worry for the next 45 years: as the present production will stay the same for 45 years and future discoveries will take care of the future demand increase:
this statement is wrong
R/P in years is a meaningless ratio:
the good ratio is P/R in % =100/ nb years:
it means that the reserves are produced each year at such percentage = depletion.
For US: for the last 50 years R/P has remained around 10 years, it means that the annual production is 10% of its reserves. Reserves and production rise and decline the same in ratio. The US reserves (fig 7).for the last 50 years went up and down when the R/P stays around 10 years.
The US conventional oil production will drop to less than 1 Mb/d around 2020 with still R/P about the same (common practice: R=Px10)!
If R includes the yet to find and if P decline with a annual constant rate d (or depletion), and if we assume Rn=1000 Gb, Pn=25 Gb/a (68Mb/d)
Rn/Pn = 40 years and Pn/Rn = d = 25/1000 = 2.5%
Pn+1 = Pn(1-d) = 0.975x25 = 24.375
as Rn+1 = Rn-Pn = 1000-25 = 975 = Rn(1-d)
Pn+1/Rn+1 = 24.375/975 = 2.5%
The model for the world (fig 8) shows that after 40 years only 637 Gb is produced with an annual production at 9.6 Mb/d, after 100 years 920 Gb is produced with an annual production at 2 Mb/, after 200 years 994 Gb is produced with an annual production at 0.16 Mb/d.
What could be the future oil price?
-World Energy Congress Tokyo 1995:
no major energy shock for the next 50 years
-Green Book of the European Union: :
no problem for supply and for price for the next 15 years
-IEA:
demand will increase by +26 Mb/d in 2010 without major oil price increase
There is a unanimous agreement from official agencies:
No problem for supply foreseen for the next twenty years despite the world’s strong increase in demand, without major price increase
They do not want to forecast an oil shock, because they will be obliged to propose something to prevent it. They prefer to wait for the shock and then to call it a natural unpredictable catastrophe. No one should be blamed!
This attitude is reminiscent of the attitude at the beginning of the 1970s, when there were a unanimous agreement to build large tankers (500 000 tonnes) and to double refining capacities, because of the exponential increase in demand... result: tens of billions dollars were invested and lost soon after!!
Oil price is not anymore controlled in the long term by the market. It is controlled since 1986 by the largest producer = Saudi Arabia : see the book VICTORY (with many references) by Peter Schweizer 1994 where the CIA, under Reagan, succeeded in 1985 to convince King Fahd to lower the price of oil to damage the Soviet economy, present at the boundaries of Saudi Arabia. This strategy was confirmed by Hodel, former Secretary of Energy, in the AAPG conference in 1995 and there is no denial from anyone!
There is a unwritten barter agreement between Saudi Arabia and the US: cheap oil (American way of life is based on cheap energy).against US protection = annual cost 50 G$, taken on the US defense budget instead of being paid by the US gasoline consumers, doubling the real cost of imported barrels!
Any long term forecast of oil price should be based on politics!
However, when the percentage of supply by the swing producers will exceed 30% as it was during the period 1971-1979, no one could oppose a drastic rise, if Saudi Arabia and the other swing producers (Kuwait, Iran, Iraq, UAE) want it. This event could be triggered around 2000 by the non-swing decline (North Sea in particular):
Lower is the oil price, more the expensive oil is produced in order to pay for fixed costs: ex North Sea: Statjford decline 15%/a
What the world needs is a slow increase in oil price to 25-30 $/b in order to diminish the demand and to increase the production by investing more and by going into the nonconventional petroleum.
How to estimate upstream potential
Past estimates from analogy or rock volume were poor. There are two better approaches:
-1-From field distribution: parabolic fractal + creaming curve
In a Petroleum System (characterized by one source rock), maturely explored, with a number of fields above 30-50, the list of every field in decreasing order of initial reserves is plotted in a log-log size-rank graph. The parabolic fractal distribution (or self-similarity) in Nature (shown on many different domains: galaxies, urban agglomerations, languages, species, reserves ...) means that a part of the distribution is similar to the whole distribution. This allows extrapolation with a parabolic curve from the largest fields. Combined with creaming curves (cumulative reserves and number of fields per size versus cumulative number of new fields wildcats), ultimate curve is constrained by the foreseeable activity, time and economics to establish the yet to find by size and number.
The Niger delta distribution (fig 9) is a genuine natural Petroleum System and a good example of a parabolic curve.
The US urban agglomerations (fig 10) is parabolic when the boundaries are morpholic and the extrapolated model up to the minimum agglomeration of 1 person is at 3% of the census: it is a good model.
-2-From past production for areas with a large number of mature basins (example US or FSU), by first correlating past annual production with past annual discovery with a shift, then by extrapolating past production with a Hubbert curve in relation with exploration correlation. The total future production equals the remaining reserves.
Best graph to consider: production profile
The FSU discovery vs production correlation (fig 11) is quite good except for the four last years (economic disturbance).
The FSU production profile (fig 12):with symmetrical Hubbert curve is a good model.
Adding many skewed independent profiles gives a symmetrical profile:
central limit theorem, as forecast by K.Hubbert in 1957.
Potential of the Middle East
-Since 1960, the average size for discovery for oil, gas and condensate has decreased drastically, when the number of discoveries has increased regularly (fig 13)
. It is mainly due to the sharp decrease in finding very large (>2 Gb) fields.which represents 80% of the reserves
-Swing producers =they are the ones who do not produce at full capacity = 5 countries = Saudi Arabia, Kuwait, Iran, Iraq and United Arab Emirates.
On the creaming curve (fig 14), 80% of the cumulative discovery was reached with only 34% of the first cumulative newfield widcats (2Gb/well). For the last thirty years, the discovery trend is around 200 Mb/well.
As production was restricted, it is difficult to extrapolate the past production.
-M.E. other than the swing producers, represents only 5% of the total discovery of the M.E. The creaming curve (fig 15) is similar: for the first part, 70% were discovered with only 25% of the cumulative newfield wildcats (50 Mb/well), when for the last 25 years, the discovery trend is around 7 Mb/well.
As for the production profile, as they produce at full capacity, there is a good extrapolation of the past production.
But most of the data is confidential and what is known is unreliable. There is
uncertainty on Ghawar reserves, of an order of the North Sea = 50 Gb, if the field is going to decline as published, around year 2000, at 15%/a. Furthermore, a lot of drilling will be required.
Investment in the Middle East and comparison
If the data on reserves is unreliable, the data on investment is even more so!
According to most publications, oil in Middle East is cheap: it was, but is it anymore?
Main indicator is the investment in developing a certain maximum capacity divided by that capacity $/b/d
-Orinoco heavy oil: development & upgrading plant: 1.5 G$ for 100 000b/d light oil:
15 000 $/b/d with a long maximum
-Deep water Gulf of Mexico: Mars field by Shell: O&GJ 1996: 1.2 G$ for 100 000b/d
12 000 $/b/d
-Athabasca tar sands: O&GJ 1996
Amoco Primrose: 0.4G$, 50 000b/d heavy oil: 8 000$/b/d,
Imperial Cold lake phases 9 to 12: 0.4G$ 45 000b/d in situ bitumen
9 000$/b/d
-OPEC -Ismail 1994: investment in the 1990s:
G$ increase capacity Mb/d
OPEC M.E 50 6.5 8 000 $/b/d
OPEC other 58 2.1 28 000 $/b/d
OPEC 108 8.6 13 000 $/b/d
in fact 65 to maintain old fields
-Al-Fathi 1994:
add capacity in 2000 by 10 Mb/d for 160 G$: 16 000 $/b/d
There is oil waiting to be developed in the M.E. in need of a great deal of investment with costs not very far from those in the rest of the world (if the published data is not too wrong). The main difference is that there is much more « easy » oil in the M.E.
Potential of the world
The assessment of ultimate oil (conventional) reserves from 1942 to present shows(fig 16) that the average estimate has settled around 2000 Gb for the last thirty years.
But recent estimates are rare. Major oil companies do not publish their estimates anymore: by lack of experienced staff or by lack of interest? The last study published by Shell (Bookout 1989) was 2000 Gb. USGS has estimated ultimate for the kast four WPC, but Masters has retired, and the assessment is not anymore in the scope of the agency (?). The USGS 1994 last figure was 2300 Gb (2100-2800) with unjustified field growth and unrealistic discovery in terms of time and wells needed.
My estimate is at end of 1996 for conventional crude oil in Gb:
cumulative production 750-800-850
discovered reserves 700-800-1 000
undiscovered 150-200-400
ultimate 1 700-1 800-2 000
The World annual discovery (fig 17) shows the decline in discovery of oil since the middle of the 1960s.
We find much less than we consume since 1980!. The cumulative oil discovery:by region (fig 18) displays the importance of the Middle East.
The World-(US+canada) discovery pattern for oil, gas and condensate (fig 19) and their extrapolation shows very well that the world is near its ultimate despite there are many small fields yet to find.
The World oil future production scenarios (fig 20) based on a conventional oil ultimate of 1800 Gb indicates that if the decline is postponed by a few years, the decline will be more severe.
The same conclusion apllies to a higher ultimate, only the date will be a little later. Happily oil production will be added with the nonconventional. Happily too, the world population is likely to decline as the birth rate decreases when the energy consumption per capita increases.
For the nonconventional known resources:, their reserves are said to be higher than for undiscovered conventional oil, but there are few reliable publications:
both huge resources, but only selected good zones which need many infrastructures (a plant compared to a wellhead for conventional)
excluding oil shales (not yet in the petroleum domain as it is a source rock in need of pyrolisis) and hydrates (huge potential=18 700 Gtoe (WEC 1995) =myth, impossible to concentrate being solid, dispersed as confirmed by the last ODP leg 164 Blake Plateau US, Dec.1995) =as gold in ocean water!.
-Position of few individuals outside the Establishment:
Some geologists (free to speak) knowing very well the geological potential of the world: some retired but having access at the only world file (Petroconsultants), some at University plus other few are fighting against the general consensus of abundance of cheap oil: L.F.Ivanhoe, C.J.Campbell, J.H.Laherrère, C.B.Hatfield, D.Hodel, J.J.MacKenzie.
Conclusions
Publishing reserves is a political act and the inventory of the petroleum assets of mankind is quite poor, because of the confidentiality by most actors.
Cheap oil is disappearing fast: 80% of the oil produced in 1995 were found before 1973, it is why oil is sold so cheap!
Most of official agencies, relying on unreliable published data, forecast that there is no problem of supplying the future demand for the next 20 years without a major petroleum price increase.
New discoveries are still numerous, but they decrease so much in size that today we consume three times more than we discover. No technological breakthrough is foreseen to help!
A few individuals (free to speak) having the knowledge and the data are fighting against the policy of no problem of all government agencies, which do not have access to the real database and which play the short term: the goal of politicians is to be reelected in the coming years.
Oil price has been controlled at a low level by Saudi Arabia since 1986 for political reasons.
Middle East has most of the remaining reserves, but needs a great deal of money to meet the future increase in demand, as the rest of the world will decline soon.
So far as the petroleum is concerned, the World is moving in the wrong direction because of poor data and erroneous presentation.
Industrial countries produce the most expensive oil at maximum capacity when the price is low, and the cheaper oil is prorated! It should be the contrary, in order to not waste our heritage!
Crisis may arrive within ten years (minimum time to prepare new solution) for oil in the energy domain (which controls much of the world prosperity) by lack of funds and of available reserves.. No alternate solution is prepared (who wants coal and nuclear?).
Only the State Companies who own 90% of the world oil reserves can prevent it by opening up their files, in order to make a more reliable inventory of the mankind asset. Solving a problem needs to recognize that it exists!
The best solution is to increase slowly the price of oil to the « just » price (25-30$/b, which depends on the ultimate estimate) to prevent a drastic shock by diminishing the demand and by investing more in nonconventional petroleum. The shock which will occur sooner than most think, if nothing is done.
Happily the world population is likely to decline too, around 2020 for the industrialized countries and 2050 for the world with about 9 billions people.
Petroconsultants has to be thanked for allowing the use of their data;
References